CREDIT: AP Photo/Jeff Chiu
If you want to buy a Tesla in the Garden State, after April 1 you’ll have to try your luck somewhere else.
New Jersey regulators caved to pressure from car dealers and decided on Tuesday to ban automakers that want to sell directly to customers from doing so in the state. The New Jersey Motor Vehicle Commission rushed through a rule change and voted 6-0 to adopt this new regulation that mandates that all new car dealers get a franchise agreement if they want a state license to sell cars in New Jersey.
Electric automaker Tesla Motors had previously received licenses to operate two stores in the state, and had been selling cars directly to consumers for about a year.
The vast majority of cars in the U.S. are sold by automakers to dealers, who then sell the cars to consumers. Most state laws either require or encourage automakers to comply with this model. Since Tesla has a model of selling their cars online, but through official Tesla “showrooms,” this new rule destroys their sales model in the state. Tesla’s argument is that state laws requiring automakers to sell cars through dealers do not apply to them because the actual sale takes place online, with the Tesla brick-and-mortar store operating as a showroom to enable the company to actually sell their cars.
Local auto dealers see this as a threat to “cut out the middle man,” and are fighting across the country to ban direct sales — which some see as a sign of corruption. The New Jersey Coalition of Automotive Retailers supported the rule, and with Tuesday’s decision, gained the support of the Christie Administration.
“Since Tesla first began operating in New Jersey one year ago, it was made clear that the company would need to engage the Legislature on a bill to establish their new direct-sales operations under New Jersey law,” spokesman Kevin Roberts said in a statement on Tuesday. “This administration does not find it appropriate to unilaterally change the way cars are sold in New Jersey without legislation and Tesla has been aware of this position since the beginning.”
Yet as Tesla wrote on its blog before the Commission met, the company had “been working constructively with the New Jersey Motor Vehicle Commission (NJMVC) and members of Governor Christie’s administration to defend against the New Jersey Coalition of Automotive Retailers’ (NJ CAR) attacks on Tesla’s business model and the rights of New Jersey consumers.”
“Until yesterday, we were under the impression that all parties were working in good faith.” Tesla wanted the matter “handled through a fair process in the Legislature.”
Auto blog Gas 2 called the move “a dirty double-cross” by the Christie Administration.
Governor Christie’s move to shut down Tesla may not just get in him trouble with electric car advocates, but members of his own party as well. On Wednesday afternoon on CNBC, House Energy and Commerce Committee Vice Chair and Congresswoman Marsha Blackburn (R-TN) told Power Lunch co-host Tyler Mathisen that the Tesla dealership conflict would be “played out on a state-by-state basis.”
“I do know there are lots of people that appreciate being able to work directly with the manufacturer,” Blackburn said.
This decision leaves 27 people without jobs, and will close two sales locations in the state. There is one service center in New Jersey, but if the ban already in place in Texas is any guide, the service center cannot display the Tesla logo or directly tell a customer there is a problem with their car. They have to talk directly with the California headquarters.
Tesla said it would prefer not to challenge this rule in court under the Commerce Clause of the Constitution, which says Congress handles interstate trade, but did not rule out the strategy as a last resort.
Successful efforts to ban Tesla direct sales in Arizona and Texas means that New Jersey is just the third state to handle a new method of selling cars in this way.
Potential Tesla customers looking to the north may also be stymied. After the New York State Assembly set aside a bill that would do the same thing in the Empire State during the last session, the effort is getting a new push this year. Aides to Governor Cuomo told the Eastern New York Coalition of Auto Dealers that he would sign it if it reached his desk.
Actor and green activist Mark Ruffalo tweeted last month that this is akin to a law banning Apple from selling Apple computers in their stores:
Imagine making Apple Computers unable to sell Apple Computers directly to their customers. That's what NYS is trying to do to @TeslaMotors
— Mark Ruffalo (@Mruff221) February 25, 2014
In Texas, where the ban is already in place, Tesla stores still exist but staff cannot offer any useful information about the car (such as costs and specs), or permit test drives. All they can do is direct potential customers to the website, where they can buy the cars from a California dealership, which will ship the car to their house in an unmarked transport with no new-car orientation. Even so, over 1,000 Teslas have been sold in Texas.
Tesla wants to sell 55,000 cars in 2014, which would be a 55 percent increase since last year. The company completed a free Supercharger network that connects the East Coast with the West Coast. CEO Elon Musk has plans for a more affordable electric car and a pickup truck. And the company announced plans to build a huge factory to manufacture batteries for cars and grid storage by 2020.
The company received a loan from the Department of Energy as it started up, paying it back nine years early.